purchasing card program internal auditpurchasing card program internal audit for the city of tarpon...

PURCHASING CARD PROGRAM INTERNAL AUDIT

FOR THE CITY OF TARPON SPRINGS, FLORIDA

September 2019

TABLE OF CONTENTS

Transmittal Letter…………………………………………………….1

Objective and Procedures………………………………………..2

Observations Summary……………….…………………………..3

Observation Detail………………………………………..…...4-10

Background…………………………………………………………...11

Selected Statistics…………………………………….……...12-19

TRANSMITTAL LETTER

Pursuant to the Risk Assessment and Internal Audit Plan dated December 5,2017, Carr, Riggs & Ingram, LLC (“CRI”) have performed consulting services forthe City of Tarpon Springs specifically to conduct an internal audit of thePurchasing Card function focused on cardholder approval, reconciliation ofpurchases, appropriate usage and other policy compliance.

Our observations and recommendations are based on our analysis of theprocesses, documents, records, and information provided to us by management.The procedures performed did not constitute an audit in accordance withgenerally accepted auditing standards. Accordingly, we express no opinion onany of the items assessed. Our procedures were performed in conformity withthe Statements on Standards for Consulting Services of the American Institute ofCertified Public Accountants.

Respectfully submitted,

Carr, Riggs & Ingram LLC

1

OBJECTIVE AND PROCEDURES

ObjectiveTo assess whether the system of internal controls over the PurchasingCard function is adequate and appropriate for promoting andencouraging consistent application of management’s objectives forcompliance with policies and procedures, as applicable.

Procedures• Conducted interviews of relevant management and staff.

• Performed sample testing – controls, compliance and substantive.

• Performed analytics on purchasing card transaction and card

population data.

• Conducted an exit conference with management and incorporated

management’s responses into our report.

2

OBSERVATIONS SUMMARY

3

Observation Risk Rating1. Cardholder Management Moderate

2. Reconciliation/Approval Moderate

3. Scanning Documentation Low

Observation ratings are a subjective evaluation of the severity of the concern and the potential impact on the operations.

High an immediate concern and could cause significant operational issues if not addressed soon.

Moderate may cause operational issues and does not require immediate attention but should be addressed as soon as possible.

Low can be addressed through the normal course of conducting business.

3

OBSERVATION 1 CARDHOLDER MANAGEMENT

The cardholder population is managed by Procurement Services. We noted thefollowing opportunities for improvement in our audit and testing procedures:

• Terminated Employees: Procurement Services is typically notified verbally by thedepartment when an employee, with a Purchasing Card, is terminated. As anadditional safeguard, Procurement Services staff should be consistently informedof employee termination in writing to minimize the risk that purchasing cards willnot be timely cancelled. During our testing, we did not note any purchasing carduse by employees terminated from January 2018 to May 2019.

• Infrequently Used Cards: We reviewed purchasing card usage between 10/1/18and 5/31/19 and noted that 26 of 137 active cards had fewer than six transactionsduring that period.

• Excessive Transaction Limits: As of May 31, 2019, Ninety percent of the City’spurchasing cards have single transaction limits of $999 and cycle limits of $4,999which are more than most cardholders require.

• Approver Independence: For Department Directors with purchasing cards, theapprover is generally another member of the department. Approval should beperformed by one’s supervisor or above.

Moderate Risk

4


Recommendation1. Procurement Services staff should obtain weekly termination reports from Human

Resources and determine if any cardholders have been terminated.

2. Procurement Services staff should annually review the purchasing card populationto identify infrequently used cards and work with departments to determine ifthese cards are still needed.

3. Procurement Services staff should review default transaction limits and determineif lower transaction limits are adequate for cardholder needs.

4. Procurement Services staff should revise Purchasing Card policies to specify thattransaction approval will be performed by a cardholder’s supervisor or above. ForDepartment Directors who report to the City Manager, the City Manager coulddesignate another Department Director to approve purchasing card use.

Moderate Risk

5


Management ResponseHuman Resources has revised the Check Out List which includes instructions that the Departmentreturns the completed Lost/Stolen/Cancelled Notification Form to Procurement Services when anemployee is terminated. Human Resources also added a line to the Check Out list to notifyProcurement Services when an employee is terminated.

The Purchasing Card Administrator will run reports semi-annually to identify infrequently usedcards and work with departments to determine if the cards are still needed.

The Purchasing Card Administrator will review the default transaction limits when reviewing thesemi-annual usage report to determine if lower transaction limits would be adequate forcardholder needs.

The City Manager has designated the Finance Director to approve Department Directorspurchasing card transactions. The Procurement Services Director will approve the FinanceDirectors purchasing card transactions.

Estimated Completion Date: March 31, 2020

Next Testing Date: July 1, 2020

Moderate Risk

6

OBSERVATION 2RECONCILIATION/APPROVAL

We tested approval of 45 purchasing card transactions from 10/1/18 –5/31/19 for compliance with Procurement Services’ Purchasing Card Policy and Procedures and noted the following exceptions in the reconciliation/approval process:

• Statement Approval:

Six statements were not signed by the assigned approver, as required by the City’s Purchasing Card Policy and Procedures. However, the assigned approver had approved the statement transactions in Works.

• Reconciliation, Approval & Submission of Reconciliation Packages:

– Four transactions were reconciled in Works after the deadline.

– Seven transactions were approved in Works after the deadline.

– Ten reconciliation packages were submitted to Finance after the deadline.

Moderate Risk

7


Recommendation1. Procurement Services staff should develop guidelines regarding who should sign

purchasing card statements if the assigned approver is not available. Consideration should be given to accepting approval in Works in lieu of approval on paper statements.

2. Procurement Services staff should periodically communicate with cardholders, reconcilers and approvers regarding required statement approvals, timely reconciliation and approval, and documentation submission.

3. Procurement Services staff should develop a review checklist for use by reconcilers and approvers to improve this process and make review more consistent across City departments.

4. Procurement Services staff should work with the Finance Department to identify departments that are consistently late approving transactions or submitting documentation and follow up with the respective departments.

Moderate Risk

8


Management ResponseThe Purchasing Card Administrator will communicate with departments to ensure that transaction approvals will be performed by a cardholder’s supervisor or above.

The cardholder and assigned approver should sign the purchasing card statement to indicate that the required review and approval has been performed.

Per Finance - The paper document provides an additional level of internal control. Finance Staff does not see all the transactions processed in Works. This was an audit requirement from our external auditor.

Procurement staff will communicate with cardholders, reconcilers and approvers on a quarterly basis and include information such as required statement approvals, timely reconciliation and approval, document submission, checklists and form revisions.

Checklists for cardholders, reconcilers, approvers and directors have been drafted and are currently being reviewed. It is anticipated the checklists will be distributed at the beginning of the new fiscal year.

The Finance Department is working in coordination with the Procurement Services Department to track Departments that are late submitting documents and signing off in Works, Departments late more than two months in a row or three times in a year will be subject to disciplinary action.



Moderate Risk

9

OBSERVATION 3SCANNING DOCUMENTATION

Scanning and attaching reconciliation supporting documentation in Works, at the departments, would make the reconciliation and review processes more efficient and effective.

RecommendationProcurement Services Department should develop procedures for the scanning of reconciliation packages at Departments, electronic storage scanned documents in Works, and retention of original documentation at the City departments.

Management ResponseProcurement Services will inform the departments that the reconciliation packages, including the statements and receipts are to be scanned into OnBase. The original documentation will remain on file with Finance in accordance with retention requirements. Procedures will be distributed.



Low Risk

10

BACKGROUND

The Purchasing Card program is a mature function at the City overseen by theProcurement Services department.

Procurement Services has developed comprehensive Purchasing Card Policies andProcedures addressing the major aspects of the program.

The Purchasing Card function can be effectively segregated into the following threeprimary components:

• Cardholder setup and maintenance – Procurement Services and the departmentwhere the cardholder is assigned are responsible for this component.

• Monthly reconciliations/approvals – individual reconciliations/approvals for eachcardholder are performed at the department level. The Finance departmentsprovides a final transaction review and reconciles each of the individualreconciliations to a consolidated statement.

• General monitoring of program – the department approver is responsible forreviewing each Purchasing Card expenditure to ensure the goods or services werenecessary and compliant with City policies.

11

SELECTED STATISTICSPROVIDED BY CITY FINANCE FROM BANK OF AMERICA “WORKS” SYSTEM (UNAUDITED)

As of May 31, 2019, the City had a total of 137 active purchasing cards. The City’s purchasing card population has been stable since fiscal year 2016.

12

100

105

110

115

120

125

130

135

140

145

150

FY 2016 FY 2017 FY 2018 FY 2019 as of 10/1/18 -5/31/19

Active Purchasing Cards


From October 1, 2018 – May 31, 2019, the City had purchasing card transactions totaling $1,594,719 which accounted for 9% of overall non-payroll disbursement for the period.

13

Purchasing Card9%

Check & EFT 91%

Non-Payroll Disbursements10/1/18 - 5/31/19


Purchasing card spending between fiscal years 2016 and 2018 was between $2 million and $2.2 million per year. Fiscal year 2019 transactions from October 1, 2018 – May 31, 2019 are on track for similar spending levels.

14

FY 2016 FY 2017 FY 2018 FY 2019 as of 5/31/19

$2,031,582 $1,908,658 $2,176,403 $1,594,719

$-

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000Purchasing Card Spending


The Procurement Services Director has a second purchasing card with a transaction limit of $250,000 for large purchases. For the period October 1, 2018 – May 31, 2019, this card was used for 244 transactions totaling $732,256 and accounting for 46% of purchasing card spending.

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Procurement Director High Limit Card

46%All other cards

54%

Purchasing Card Spending10/1/18 - 5/31/19


Remaining purchasing cards (other than the Procurement Services Director’s high limit card) were used for 5,666 transactions totaling $862,463. The average purchasing card transaction amount was $166 and the average cardholder had 39 transactions per year. Forty-one percent of transactions were between $21 and $100.

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Less than $2016%

$21-$10041%

$101-$20017%

$201-$50018%

$501-$1,0008%

$1,000+0%

Purchasing Card Transaction Amount10/1/18 - 5/31/19


Ninety percent of the City’s Purchasing Cards have the default transaction limits.

17

Purchasing Card Limits

Cycle Limit Transaction Limit

# Cards

$4,999 $999 124 Default transaction limit

$4,999 $1,500 5

$6,999 $2,000 1

$9,999 $999 3

$9,999 $2,000 2

$200,000 $50,000 1 Director of Finance

$400,000 $250,000 1 Director of Procurement Services

Total 137


Overall, the City has an employee-to-card ratio of 41%.

18

43

15

10

18

6

4

5

4

4

4

5

6

3

4

3

3

82

70

53

42

18

6

9

8

6

4

4

15

4

4

3

5

Public Services

Police Department

Public Works

Fire Department

Library

Information Technology

Cultural Services

Building Development

City Clerk & Collector

City Manager

Procurement

Finance

Planning & Zoning

Human Resources

Project Administration

Mayor & Board of Commissioners

Cit

y D

epar

tmen

t

Number of Employees Vs Purchasing CardsAs of 5/31/19

# Employees

# Cards


Public Services, Police Department and Public Works account for 70% of purchasing card spending.

19

Public Services, 45%

Police Department, 14%

Public Works, 11%

Fire Department, 8%

Library , 4%

Other Departments, 18%

Purchasing Card Spending by Department10/1/18 - 5/31 /19

purchasing card program internal auditpurchasing card program internal audit for the city of tarpon...

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